Helping an adult child learn about personal finance

[Barefootwoman]

A few years ago, my daughter dropped out of college because she wanted to take a job instead. As predicted, she soon learned it was far more slogging than she counted on - so now she is back at school, finishing her degree program.

I've recently learned she has a weak credit score because she was late with a couple payments and spent near to the max of her credit line.

She is now working to pay down the principal, mostly through cutting spending and applying more income toward paying it down. I want to help, but not enable.

I've been fortunate to never have weak credit, so I don't know of other methods than accelerating payment, to boost her score.

Suggestions appreciated - any other tips I can pass on to her? thank you.

 

[Shadow]

try getting a friend of hers to talk to her about it. it's never fun to have your parent talking down to you, especially finances

 

[girlmeetsworld]

I've been fortunate to never have weak credit, so I don't know of other methods than accelerating payment, to boost her score.

If you want to boost her credit score and your score is good, add her as an authorized user to several of your cards that you use and pay off each month (just sock drawer her authorized user cards, she doesn't have to use them to have her score boosted this way).

 

[Barefootwoman]

try getting a friend of hers to talk to her about it. it's never fun to have your parent talking down to you, especially finances

She approached me for advice and assistance, that's the kind of relationship we have....but I will ask how her friends are doing in that regard.

 

[smittytabb]

try getting a friend of hers to talk to her about it. it's never fun to have your parent talking down to you, especially finances

or a sibling. Sometimes it is better coming from a peer for sure.

 

[SanDiego1K]

Suggestions appreciated - any other tips I can pass on to her? thank you.

There are two schools of thought. One is to pay the minimum required on each and to put all the excess on the card with the highest interest. The other is to pay the minimum required on each and to put all the excess on the smallest amount. I suggest the latter. Accomplishment is seen more quickly.

 

[Shadow]

She approached me for advice and assistance, that's the kind of relationship we have....but I will ask how her friends are doing in that regard.

that wasn't mentioned before, so i had no way to know that. i still have a point that you want the message to be coming from a safe place where she won't feel threatened or demeaned. your daughter obviously respects you, but that could still end up hurting any advice you give

 

[MickiSue]

Adding her as an AU will help, certainly, and she doesn't need to use the card, just gets the benefits of the good usage.

If she follows either of the methods outlined above, her credit rating will rise as her balances drop. And once the lates are at least 24 months behind her, it will rise more quickly, and those who use FICO to make decisions about everything from credit to insurance rates to hiring won't be so worried about them.

Having just one kind of credit on the report is less advantageous than having a variety. But if she has student loans, then the rise in her rating won't be so dramatic until she begins to pay them down. If, for example, you have $25K in loans, then your "credit limit" is $25K for them, and they'll stay at 100% utilization till they have begun to be paid. As a student, that's unlikely to happen.

The same thing happens with a car loan: initially, it's at 100% utilization, but begins to drop as payments are made.

More than worrying about her credit score at the moment, though, general information about living below one's income, making sure to budget to pay debt before budgeting for fun, etc might be important topics for her.

While credit scores matter, unless you have a particular need for it to be stellar, it's more important to get a handle on spending VS income, and then worry about the credit scores.

 

[SanDiego1K]

Is she open to discussing how to set up a budget? It's not analogous but we had a teenager live with us one year. I worked with her on how to budget. She took to it like a duck to water. It was amazing. Obviously it's much more sophisticated for an adult than the type of expenses a teen has. It's important to consider expenses that only occur periodically, such as insurance or property tax, and learn how to plan for them. I think learning how to manage money, to cover current expenses and to plan for the future, is very satisfying.

 

[pcedwin]

IMO, the best way to help her is to help/encourage her to save money. After she had saved money, she will have the ability to pay it off. I taught my son this way, and he can handle his finance perfectly with a lot of savings.

 

[Barefootwoman]

Thank you for all the great ideas. I've given her several basic personal finance books and she's been eating those up.

She also asked for my help in setting up a budget awhile back - so that's been working too.

 

[Andrew Beall]

Have you suggested she try a 0% balance transfer? I believe Chase Slate offers 0% for 15 months with no balance transfer fee. I'm assuming her interest rates are high, so it would probably save her quite a bit if she continues paying aggressively.

 

[Matt]

Have you suggested she try a 0% balance transfer? I believe Chase Slate offers 0% for 15 months with no balance transfer fee. I'm assuming her interest rates are high, so it would probably save her quite a bit if she continues paying aggressively.

Dangerous without close behavioral checks. It is easy to think it is free money and debt can increase.

If behavior toward repayment displays stability then it might be good, but will have to be tightly monitored.

 

[smittytabb]

Dangerous without close behavioral checks. It is easy to think it is free money and debt can increase.

If behavior toward repayment displays stability then it might be good, but will have to be tightly monitored.

Yep and frankly as someone with four adult children I can say that monitoring it closely defeats the whole purpose. You need to have them own it. And you don't want to have to be so closely involved really. I have some very responsible money managing children but have one who has struggled so at some point you have to watch them fall down and not be the one picking them up. It can be tough, but it is their life.

 

[Andrew Beall]

Dangerous without close behavioral checks. It is easy to think it is free money and debt can increase.

If behavior toward repayment displays stability then it might be good, but will have to be tightly monitored.

True, it depends on the individual. I'm for giving people the information and letting them do with it what they will.

 

[Matt]

True, it depends on the individual. I'm for giving people the information and letting them do with it what they will.

Don't get me wrong, it's a good tip... But just giving (bits of) information and letting them do what they will is what caused the problem this thread is addressing.

 

[Andrew Beall]

Don't get me wrong, it's a good tip... But just giving (bits of) information and letting them do what they will is what caused the problem this thread is addressing.

Right, but I'm addressing the OP and assuming she could fill her daughter in on the details and implications. I agree that a strong emphasis would need to be placed on the importance of continuing to pay back the balance as aggressively as if you were still paying 20-30% interest.

 

[nomadwfs]

SanDiego1k mentioned two methods to pay down her debt.

A popular method (the one he recommends) is commonly referred to as the debt snowball. The idea is that you rank order your debts from smallest to largest, and pay them off in that order. Money freed up from paying the smallest debt can be applied to the next smallest, and so on. This has a significant psychological boost, as you can see clearly whole monthly payments disappear. See the link:
http://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan/

The second method (which I would recommend) is to rank order your debts from largest APR to smallest APR, and pay them off in that order. In this scenario, you make the most efficient use of your money (by paying the least amount possible in interest) but depending on the types of debts and your daughter's level of discipline it may take a while since you aren't wiping out entire accounts in the first method.

In terms of improving her credit score... I would say you first need to stop the bleeding (large, high APR debts). Her credit score is irrelevant, if not beneficial now - it prevents her from overextending any further. Once her debts are wiped out, the approach would be to see what the main drags on her score are. Good resources are creditkarma.com, and American Express (if she has an account, they offer a free credit report and FICO to all members). If it's just late payments hurting her score (her utilization and inquiries are probably also significant drags) then I would recommend visiting creditboards.com to read about various methods to convince lenders to remove negative information from her file. By simply wiping out her current debts, her score should go up significantly by improving her utilization, the age of her accounts, and inquiries falling off.

Of course, this is dependent upon a solid foundation of fiscal discipline. For now until all her unsecured debt is paid, she needs to refrain from adding to any balances and applying for more credit.

 

[fpguy]

What really helped me was to sit down and do the actual math based on average returns, currently salary, expected salary so on and so forth. When you add up the numbers and realize that you will be "poor" for the rest of your life if you make "the magic number" of $75k a year if you don't save/invest properly, it makes you take a more active approach to your finances as I know I sure as hell don't want to be working when I am 75 years old.